Target quarterly results fall as holiday discounts and dockworker strike hit profits

NEW YORK (AP) - Target etched out a slim sales increase in the third quarter and profits slumped as inflation-weary customers pulled back on spending and costs related to a dockworker strike in October dragged on results.

The Minneapolis retailer fell short of Wall Street expectations for the quarter and its outlook for the final three months of the year also disappointed industry analysts in an environment in which Americans are still spending, but being more selective.

The weak quarterly performance is concerning particularly because Target has cut prices on holiday goods, including a Thanksgiving deal that put the cost of the holiday meal below last year’s total.

The most recent quarter at Target stands in stark contrast to rival Walmart, which reported another quarter of stellar sales Tuesday and released optimistic projections for the holiday season. And last month, Amazon reported a boost in its quarterly profits. Quarterly sales jumped 11% at Amazon, exceeding expectations.

Target’s shares plummeted nearly 21% in morning trading Wednesday.

"We encountered some unique challenges and cost pressures that impacted our bottom-line performance," said Chairman and CEO Brian Cornell.

Target posted net income of $854 million, or $1.85 per share, in the quarter ended Nov. 2, far short of the $2.30 analysts were looking for, according to FactSet, and down from $971 million, or $2.10 per share, in the year-ago period.

Sales rose to $25.67 billion, up from $25.4 billion last year, but fell shy of Wall Street expectations.

Target said that it now expects its earnings per share to be in the range of $1.85 to $2.45 for its fiscal fourth quarter. That’s below the $2.65 per share expected by analysts polled by FactSet.

The retailer reported that its comparable sales — those from stores and digital channels operating for at least 12 months — rose 0.3% during the third quarter. That’s below the 2% gain posted in the second quarter. The increase in the April-June period reversed months of declines, including a 3.7% drop in the first quarter and a 4.4% decline during the company’s final quarter of 2023.

Comparable sales of cosmetic products rose more than 6%, while food and beverages, as well as essentials like shampoo, increased in the low single digits compared with last year.

There were some bright spots. Target said quarterly customer traffic increased 2.4%. Target executives said that translates to 10 million more sales transactions from a year ago. Digital comparable sales also increased 10.8%, reflecting a 20% increase in same-day delivery powered by its Target Circle loyalty program and a double-digit increase in its drive up-service.

Still, Target faced a number of challenges. For one, less than a quarter of Target’s sales come from food and beverages, so the company is more reliant on discretionary items like clothing and accessories.

Target executives also noted that the company, like other retailers, had to reroute some merchandise when 45,000 dockworkers went on strike for the first time since 1977. That increased operating costs and ate into profit margins as inventory built up in warehouses.

And Target said shoppers remain cautious as prices on necessities, while abating, are still higher than they were a few years ago.

"They’re being very patient, shopping for promos, looking for great value on those essential items that they need for their pantry," Cornell said on a call with reporters. "And they’re shopping very conservatively and have been in discretionary categories throughout the year."

For example, Target executives said they’re pulling back from buying TVs, but are looking to spruce up their home with candles, frames and vases.

To boost sales, Target has been lowering prices. Last spring, it cut prices on thousands of necessities ranging from diapers to milk. This holiday, it’s featuring thousands of toys, more than half of which are priced under $20. Target is also offering a $20 Thanksgiving meal bundle for four people, $5 less than the company’s 2023 Thanksgiving meal.

The retailer also has rolled out programs to make shopping easier as it competes with fellow discounters Walmart and Amazon. In April Target unveiled a paid membership program called Target Circle 360, which comes with unlimited free same-day delivery for orders over $35 and free two-day shipping for all orders.